CABLE TV;AD AGE SPECIAL REPORT;TELECOMMUNICATIONS REFORM MEANS MSOS MUST PLAY BY A NEW SET OF RULES. AS TELCOS BUILD CABLE PROGRAMMING, IT MEANS VIEWING CHOICES FOR CONSUMERS-AND OPPORTUNITIES FOR ADVERTISERS

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Mike Parent, a subscriber of Jones Intercable in the Chicago suburb of Naperville, has a succinct description of his cable TV service.

"How's Jones' cable service? It's horrible," he says.

Mr. Parent, the media director at Young & Rubicam, Chicago, says the picture is fine but service is poor.

"About a year ago the service was down about a day a week, and this went on and on," he says. "You couldn't get them on the phone. I hear they blamed it all on the city. They never sent an explanation, or offered to credit us with the days the service was down."

Mr. Parent happens to live in a community where the local phone company, Ameritech, plans to invest nearly $20 million to build a state-of-the-art, two-way video network.

DISTRIBUTION CHANGES

If legal challenges are settled and construction is on schedule, parts of Naperville will get its first Ameritech-delivered video services this summer.

This development reflects the changes in the business of cable TV programming "distribution"-a business that will see more changes now that telecommunications reform is here.

Traditional cable operators still command the overwhelming majority of the cable distribution business. But consumers will start facing a choice of cable providers, primarily from direct broadcast satellite services and regional Bell operating companies. That will create opportunities-and maybe headaches-for advertisers.

Priority No. 1 for the regional Bell operating companies may be entering the lucrative long-distance business, "but the growth long term is going to be video services and cable modem access and the like," says one Baby Bell executive.

Since last year, DBS and Baby Bells have started to chip away at cable operators' business.

Direct broadcast satellite services such as DirecTV and Primestar currently are more common among consumers. But the Baby Bells' fledgling efforts in cable TV have more impact for marketers: their services, like cable operators, accept local advertising.

One selling point Ameritech will use in touting its cable service to consumers is a broader choice of programming.

Ameritech expects to offer consumers an 80-to-90 channel package of video programming and information ser-vices, being developed by a joint venture between Ameritech, Walt Disney Co., BellSouth, GTE and SBC Communications.

I WANT MY SCI-FI CHANNEL

For example, in Naperville Ameritech plans to include channels not available today to residents there, such as Cartoon Network, Golf Channel and Sci-Fi Channel. Also in the basic package will be Disney Channel, which usually is a pay channel on most cable systems.

In the future, Ameritech plans to expand its offerings to include hundreds of channels and interactive services such as home grocery shopping, banking and games.

"I'll probably switch" when Ameritech comes knocking at his door, says Mr. Parent. One main reason for his switch: Ameritech's inclusion of Sci-Fi Channel, which Jones currently does not feature in its lineup.

"And most everyone I've asked has told me they'll switch as well," he says.

LOT OF PROMISE, BUT LOTS OF TALK

Opinions such as these are boosting the hopes of executives of networks looking for increased distribution.

Cable options for advertisers

TELCO

The cable networks that do not have a lot of distribution, such as a Sci-Fi Channel or History Channel, have the most to gain from telco entry into video programming.

"There's a lot of promise," says an executive familiar with History Channel's plans for expanded distribution, "but so far it's been mostly talk. We've had numerous discussions with PacTel, but so far that's all they are, discussions."

The entrance of the telcos into the cable arena is a good news/bad news situation for the advertising community.

On the national level, "if cable and the telephone companies carve up market share, it doesn't affect the reach of the national networks, such as your CNNs and your A&Es," says Jean Pool, exec VP-director, North America media buying services for J. Walter Thompson USA, New York.

CARVED AUDIENCES

If the skirmishes actually get more people in the aggregate to sign up for the services, it's just more eyeballs for the advertisers on the cable networks.

However, Ms. Pool, notes, on the local level it is not to the benefit of the advertiser to see cable carved up by competitors. Local cable's cost per thousand viewers is already outrageously high, Ms. Pool says, and fractionalization won't likely help lower CPMs.

Thus far, Ameritech appears to be the most aggressive Baby Bell in securing cable service agreements. Besides Naperville, Ameritech has won a cable franchise for another Chicago suburb, Glendale Heights, and has franchises in communities around Detroit, Milwaukee and Columbus, Ohio.

PLANS TO FOLLOW

But the company's local ad plans remain a mystery. Ameritech has hired a director of ad sales-Tammy Shay, who used to work in the Chicago ad office of Discovery Channel. Ms. Shay declined to be interviewed.

One strategy the telcos have is to join cable interconnects, the groups of cable companies that have joined together to present unified areas to the ad agencies.

For example, in Chicago, the interconnect is made up of cable systems owned by Jones, Tele-Communications Inc., Time Warner Cable, Continental Cablevision, Post-Newsweek Cable, Multimedia Cablevision and U.S. Cable. By joining together, agencies can do one-stop shopping and make buys that go to 1.5 million Chicago-area homes.

TREADING CAREFULLY

But some cable system operators might not be too keen on allying with telco rivals.

"We have to be very careful on this one," says an ad sales executive at one of the nation's five largest multiple systems operators. "Publicly, we're all saying we'll look at the matter. But we're combing the bylines of these interconnects to see if we can keep them out."

It's one thing, this executive says, for a telco or other company to build a cable franchise outside of its service area-like U S West is doing in Georgia-but it's another matter when a company is overbuilding the existing cable franchisee.

But what of the fact that letting competitors join the interconnects would make it easier for ad agencies to buy spots? "That may be true," this executive says, "but that's not our job."

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